Sparton Corporation Fourth Quarter and Fiscal Year 2016 Financial - - PowerPoint PPT Presentation

Sparton Corporation Fourth Quarter and Fiscal Year 2016 Financial Results

September 7, 2016

Safe Harbor Statement

Certain statements herein constitute forward-looking statements within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. When used herein, words such as “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “will” or “intend” and similar words or expressions as they relate to the Company

• r its management constitute forward-looking statements. These forward-looking statements reflect our current views with

respect to future events and are based on currently available financial, economic and competitive data and our current business plans. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward- looking statements whether as a result of such changes, new information, subsequent events or otherwise. Actual results could vary materially depending on risks and uncertainties that may affect our operations, markets, prices and other factors. Important factors that could cause actual results to differ materially from those forward-looking statements include those contained under the heading of risk factors and in the management’s discussion and analysis contained from time-to-time in the Company’s filings with the Securities and Exchange Commission. When we calculate adjusted earnings per share, adjusted EBITDA and other adjustments to the statements of income, we exclude certain expenses and income, including discrete tax benefits, because we believe that they are not related directly to the underlying performance of our fundamental business operations. We exclude these measures when reviewing financial results and for business planning. Although these events are reflected in our GAAP financial statements, these transactions may limit the comparability of our fundamental operations with prior and future periods. We believe EBITDA and adjusted EBITDA are commonly used by financial analysts and others in the industries in which the Company operates and, thus, provide useful information to investors. The Company does not intend, nor should the reader consider, EBITDA or adjusted EBITDA to be an alternative to operating income, net income, net cash provided by operating activities or any other items calculated in accordance with GAAP. The Company's definition of adjusted EBITDA may not be comparable with other

• companies. Accordingly, the measurement has limitations depending on its use.

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• Overview of Recent Developments
• Fourth Quarter and Fiscal Year 2016 Financial Results

 Consolidated  EBITDA  MDS Segment  ECP Segment  Liquidity & Capital Resources

• Other Fourth Quarter Highlights and Outlook
• Q & A

Today’s Agenda

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Overview of Recent Developments

• Fourth quarter financial and operating performance
• Continued improvement in SG&A footprint
• Amendment to Credit Facility
• Strong free cash flow in Q4 and FY 2016
• Strengthening pipeline and New Program wins in MDS Segment
• Write-off of impaired goodwill in MDS Segment

4

Consolidated Financial Results

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SELECTED FINANCIAL DATA Q4 FY16 Q3 FY16 Q4 FY15 2016 2015 Net sales 106,967 $ 102,175 $ 126,393 $ 419,362 $ 382,125 $ Gross profit 21,422 19,067 28,090 80,148 74,814 Gross profit margin 20.0% 18.7% 22.2% 19.1% 19.6% Selling and administrative expenses 13,460 $ 13,727 $ 16,220 $ 55,151 $ 46,969 $ Adjusted selling and administrative expenses (non-GAAP) 12,446 12,605 15,968 51,883 45,647 Adjusted selling and administrative expenses, % of sales (non-GAAP) 11.6% 12.3% 12.6% 12.4% 11.9% Impairment of goodwill 64,174 $

• $
• $

64,174 $

• $

Operating income (loss) (59,417) 2,676 8,809 (51,789) 17,252 Adjusted operating income (non GAAP) 5,875 3,740 11,604 16,329 21,760 Earnings (loss) per share - diluted (4.30) 0.12 0.51 (3.91) 1.10 Adjusted earnings per share (non GAAP) 0.50 0.34 0.81 1.56 1.74 EBITDA (non-GAAP) (55,594) 6,546 12,398 (36,021) 28,647 Adjusted EBITDA (non GAAP) 10,019 7,865 15,361 33,542 34,307 Adjusted EBITDA margin (non GAAP) 9.4% 7.7% 12.2% 8.0% 9.0% Free cash flow 25,953 $ 6,235 $ 1,296 $ 42,034 $ 8,950 $ For the Quarters Ended For the Fiscal Year Ended

(Dollars in thousands)

Adjusted EBITDA (non-GAAP)

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Q4 FY16 Q3 FY16 Q4 FY15 2016 2015 Net income (loss) (42,081) $ 1,136 $ 5,098 $ (38,283) $ 10,989 $ Interest expense 1,059 956 894 3,803 2,456 Income taxes (18,437) 612 2,846 (17,216) 3,966 Depreciation and amortization 3,865 3,842 3,560 15,675 11,236 EBITDA (55,594) 6,546 12,398 (36,021) 28,647 Adjustments Impairment of goodwill 64,174

• 64,174
• Costs related to potential sale of the Company

671 430

• 1,101
• Restructuring charges

164 113

• 3,185
• Stock-based compensation

321 255 167 1,445 1,885 Other nonrecurring adjustments, net 283 521 2,796 (342) 3,775 Total adjustments 65,613 1,319 2,963 69,563 5,660 Adjusted EBITDA 10,019 $ 7,865 $ 15,361 $ 33,542 $ 34,307 $ Adjusted EBITDA margin 9.4% 7.7% 12.2% 8.0% 9.0% For the Quarters Ended For the Fiscal Year Ended

(Dollars in thousands)

Reconciliation of EBITDA

7 Q4 FY16 Q3 FY16 Q4 FY15 2016 2015 EBITDA, before corporate allocations: MDS 7,597 $ 5,235 $ 7,244 $ 24,424 $ 25,335 $ ECP 8,009 8,140 12,027 32,821 29,602 Total segment EBITDA 15,606 13,375 19,271 57,245 54,937 Less: Corporate selling and administrative (7,428) (7,213) (7,077) (30,368) (27,004) Plus: Corporate depreciation 402 384 204 1,276 714 Plus: Stock-based compensation 321 255 167 1,445 1,885 EBITDA before nonrecurring items 8,901 6,801 12,565 29,598 30,532 Nonrecurring items 1,118 1,064 2,796 3,944 3,775 Adjusted EBITDA - CONSOLIDATED 10,019 $ 7,865 $ 15,361 $ 33,542 $ 34,307 $ For the Fiscal Year Ended For the Quarters Ended

MDS Segment Financial Results

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SELECTED FINANCIAL DATA Q4 FY16 Q3 FY16 Q4 FY15 2016 2015 Gross sales 72,346 $ 68,187 $ 84,749 $ 282,076 $ 263,940 $ Intercompany sales (3,627) (3,532) (6,592) (17,028) (17,756) Net sales 68,719 64,655 78,157 265,048 246,184 Gross profit 9,732 7,771 13,094 34,788 36,461 Gross profit margin 14.2% 12.0% 16.8% 13.1% 14.8% Selling and administrative expenses 3,155 $ 3,608 $ 6,744 $ 14,621 $ 11,934 $ Allocation of corporate expenses 2,281 2,242 1,886 9,192 6,681 Total selling and administrative expenses, % of net sales 7.9% 9.0% 11.0% 9.0% 7.6% Amortization of intangible assets 1,879 1,948 1,801 7,938 5,811 Impairment of goodwill 64,174

• 64,174
• Operating income (loss)

(61,861) $ 231 $ 2,663 $ (61,813) $ 9,535 $ Segment EBITDA, excludes corporate allocation and goodwill impairment 7,597 5,235 7,244 24,424 25,335

(Dollars in thousands)

For the Quarters Ended For the Fiscal Year Ended

ECP Segment Financial Results

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SELECTED FINANCIAL DATA Q4 FY16 Q3 FY16 Q4 FY15 2016 2015 Gross sales: Domestic sonobuoys 20,753 $ 19,639 $ 23,159 $ 76,094 $ 81,437 $ Foreign sonobuoys 5,811 6,313 10,070 25,839 15,298 Engineering 2,764 3,760 4,639 17,358 13,466 Rugged and other 8,934 7,854 10,437 35,268 26,114 Gross sales 38,262 37,566 48,305 154,559 136,315 Intercompany sales (14) (46) (69) (245) (374) Net sales 38,248 37,520 48,236 154,314 135,941 Gross profit 11,690 11,296 14,961 45,360 38,353 Gross profit margin 30.6% 30.1% 31.0% 29.4% 28.2% Selling and administrative expenses 3,115 $ 2,837 $ 2,513 $ 11,128 $ 8,107 $ Allocation of corporate expenses 1,168 1,061 981 4,354 2,931 Total selling and administrative expenses, % of net sales 11.2% 10.4% 7.2% 10.0% 8.1% Amortization of intangible assets 390 $ 413 $ 438 $ 1,654 $ 780 $ Operating income 6,196 6,424 10,286 25,880 25,033 Segment EBITDA, excludes corporate allocation 8,009 8,140 12,027 32,821 29,602 For the Quarters Ended For the Fiscal Year Ended

(Dollars in thousands)

Liquidity & Capital Resources

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(1) – As calculated under the Credit Revolver Agreement.

1,796 1,669 11,539 32,972 139,586 97,623

• 0.50

1.00 1.50

25,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000 225,000 250,000 275,000 300,000

Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16

Debt-to-Equity Ratio Net Debt ($ '000)

Debt-to-EBITDA Leverage1 = 3.0x

($ in '000)

FY15Q4 FY16Q1 FY16Q2 FY16Q3 FY16Q4

Cash and equivalents 14,914 2,187 4,830 834 132 Credit Availability* 119,800 135,800 140,700 150,700 76,939 Total 134,714 137,987 145,530 151,534 77,071

($ in '000)

FY15Q4 FY16Q1 FY16Q2 FY16Q3 FY16Q4

Credit Revolver 154,500 138,800 133,800 123,400 97,206 Lease Obligations

• 604

549

($ in '000)

FY15Q4 FY16Q1 FY16Q2 FY16Q3 FY16Q4

Net Inventory 79,503 86,589 76,717 79,959 77,871 Net Inventory Turns 4.8 4.6 4.5 4.4 4.2

* As of June 2015, includes Letters of Credit.

Cash Availability Debt Inventory

Other Fourth Quarter Highlights and Outlook

• 66 new program wins in the MDS Segment with expected annual revenue of $15 million

when fully ramped up into production

• Total new program wins in the MDS Segment in fiscal 2016 of $61 million of expected

annual revenue when fully ramped up into production

• $54 million award for the production of domestic sonobuoys
• $11 million in awards for the production of foreign sonobuoys
• Backlog of:
• $138 million in the MDS Segment
• $142 million in the ECP Segment principally including:
• $117 million in domestic sonobuoys
• $6 million in foreign sonobuoys
• $14 million in rugged displays
• Q1 FY 2016 Guidance:
• Revenues of $97 to $101 million
• Gross profit margin of approximately 18%
• Segment revenues to provide a similar relationship to Q4 operating results
• Potential sale of the Company

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Q&A

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